Sole Trader Partnership after death

kew63

Hi

Can anyone confirm for me that with a sole trader partnership, if one of the partner's dies then the business debts pass automatically to the surviving partners ? and not to the family of the deceased ?

Many thanks

:-)

Vomityspice

Your statement is a bit confusing? Is it a sole trader or a partnership? It can't be both!

Assuming it's a partnership then partners are jointly liable for all debts. (Partnership Act 1890).

Is there a partnership agreement? if not the rule in the PA (1890) means that the partnership will automatically need to be dissolved and any debts outstanding paid from the assets.

Thems the rules.....

kew63

Sorry - it was a father & son. Father started the business as sole trader, son joined years later & took over. Father effectively retired but business remained a partnership. Definately not a limited company unfortunately.
Was not a partnership agreement, but was told that this didnt matter.
When the father died last year, did the debts pass to the son ? we were told that they did, and in any case he was reponsible for them anyway because his name was on the company accounts submitted.
Debts have now passed into a bankruptcy but one of the creditors is now chasing the widow of the father ?
Many thanks

Vomityspice

These are the reasons why 'Partnership Agreements' are vital!

When the father retired, there were a number of things he could have done to protect himself from further claims.

'Partnership Agreement' didn't matter? In a sense it doesn't as you have the Partnership Act to fall back on. Tragically the Partnership Act has some nasty sections that will 'bit you on the derrière'. In your case, after the death, the partnership should have been dissolved (as per the Act) although I suspect it just continued.... or was it wound up?

The other issue you had was a partnership binds the partners. A good example of this is large commercial practices. When one person messes up, it is with great joy we send court paperwork to ALL the partners as they are all liable for the debts. This always goes down very well with the partners.....

In your case, the debts did indeed pass on to the other partner (the son). In addition, the concept of 'passing off' may also come into play. If people dealing with the partnership 'believed' he was a partner, then again all the partners would be liable.

Creditors now chasing the widow.... why not, I'm assuming as part of his estate she received property (survivorship rule) which should rightly be used to pay off the creditors. As I am assuming you have no assets which the creditors can get hold off, they are going for the next best thing.

If on retirement the father had announced his departure in the London Gazette, and informed the local businesses he was contracted with that he had left the partnership, destroyed the headed paperwork with his details on (or sorted out a novation / indemnity ) this wouldn't have been a problem. As he did none of those things, the creditors will have free range to get their money back from his estate has his liability is 'unlimited'.

Thats why its always wise to employ a good solicitor at the start of a partnership rather than having to pay for one now.....

kew63

Vomityspice wrote: »

I'm assuming as part of his estate she received property (survivorship rule) which should rightly be used to pay off the creditors. As I am assuming you have no assets which the creditors can get hold off, they are going for the next best thing.

The house was in joint names and as we understand it his share automatically passed to his widow on his death. There were creditors (eg credit card) not related to the business, and they wrote off his debts because there were NO assets. What was in his bank account didnt quite pay for his funeral. They didnt mention the house, and when I asked I was told it was because in was in joint names, and not in his name & then inherited by his widow.

The house also is subject to equity release and on the widows death the majority of the value of the house will pass to the equity firm.

The business continued after the father's death for several months and shut in April, BR was in July.

Sorry but all this is going against what we were told by the Insolvancy Practioners & CAB. We had to check that hubbie was responsible for the debts and the universal response was that he was.

The creditor concerned has also been chasing solely hubbie for the debt and no mention has ever been made that the father was liable, so how can he just change his mind now - a year later? The debt is included in a BR, but he can still recover it through other means??

Seeking legal advice is a lovely idea but we dont have that kind of money to chuck around. What exactly are the chances of this creditor being able to take out a CCJ and then a charge on the house ? and how much would it cost him ?

The debt is approx £14,000

The points about the agreement are wholeheartedly agreed with unfortunately there are many things that should have been done, but werent.

Many thanks for your help - much appreciated

Vomityspice

Without seeing the Land Registration for confirmation, the usual method for husband and wife is to hold property is as joint tenants. Therefore when he died, the house automatically was vested with his wife. If it was held as TIC then an assent would be needed.

When was the property made subject to an equity charge? before Bankruptcy or after?

Why wasn't the company dissolved on the partner's death (as required by law)?

Can't comment on what you might have been told by others, although you always have the options of looking up the law via the web. Sadly, the Partnership Act is very clear on liability. As partners you are jointly and severely liable for any debts to an unlimited amount.

The other point worth making is that a partnership has no legal identity, the individuals are the company so any debts can be individually chased. The Limitations Act (can't remember the year!) usually gives 6 years to make a claim (12 for mortgages) so their claim is well within the time limit.

Will the claim be successful? Depends on what assets you have and what can be clawed back from the wife. As it appears you have claimed BR, the only option is to chase the money from the other partner (i.e tangible asset). As stated before, both partners hold equal liability so if they can't get their money from you, then why not try to get it from her? After all, some people might argue that the house is actually partly paid with creditors money. Did he not have any life insurance?

Have they actually made a claim on an N1 or just writing letters to her? If they have and are successful the likely order is a charge on the house so that when it is sold, the money will then be given (assuming there is no other money to take). Depending on the amount of equity (and other charges on the property) left, means that over time, they will eventually get there money.

The cost to take this action isn't particularly expensive search for EX50 on google. From memory, assuming the debt is the whole £14,000 then the fee is approx £225 (cheaper if done online). Add to that any solicitor's fees to process the claim (£2K - £3K). If the solicitor's think they have a good case they will undoubtedly offer a CFA (Conditional Fee Agreement) as they can they charge an uplift on their fees of successful.

Also note that under the Insolvency Act any attempt to divert assets to defraud creditors can be set aside.

kew63

Vomityspice wrote: »

Without seeing the Land Registration for confirmation, the usual method for husband and wife is to hold property is as joint tenants Yes they were. Therefore when he died, the house automatically was vested with his wife so how can it be seen as his asset ?. If it was held as TIC then an assent would be needed.

When was the property made subject to an equity charge -years & years ago ? before Bankruptcy july 2009 or after?

Why wasn't the company dissolved on the partner's death (as required by law)? dint knwo we had to & hubbie had been running the business for years, he was a sole trader making his own tax returns, the company accounts were in his name, there was no written partnership agreement, the first time this phrase came up was a couple of weeks before the bankruptcy. It's done with now, a year has past since father died, the business has been closed for 6 months & been BR for 4.

Can't comment on what you might have been told by others, although you always have the options of looking up the law via the web can promise you we spent hours trying to get help, unfortunately money wasnt an option, I was supporting my husband and all money coming into company went to creditors. Tried evry charirt, forum and saw an Insolvancy Practioner.. Sadly, the Partnership Act is very clear on liability. As partners you are jointly and severely liable for any debts to an unlimited amount.

The other point worth making is that a partnership has no legal identity, the individuals are the company so any debts can be individually chased. The Limitations Act (can't remember the year!) usually gives 6 years to make a claim (12 for mortgages) so their claim is well within the time limit.

Will the claim be successful? Depends on what assets you have hubbie none & the OR is satisfied with that, father had just enough to pay for his funeral and what can be clawed back from the wife none also, is on benefits & state pension. As it appears you have claimed BR, the only option is to chase the money from the other partner (i.e tangible asset). As stated before, both partners hold equal liability so if they can't get their money from you, then why not try to get it from her but she wasnt a partner, and you'vr said about that as joint tenants that the house is not an asset? After all, some people might argue that the house is actually partly paid with creditors money most. Did he not have any life insurance? No

Have they actually made a claim on an N1 or just writing letters to her just a letter? If they have and are successful the likely order is a charge on the house so that when it is sold, the money will then be given (assuming there is no other money to take). Depending on the amount of equity (and other charges on the property) left, means that over time, they will eventually get there money.

The cost to take this action isn't particularly expensive search for EX50 on google. From memory, assuming the debt is the whole £14,000 we have checked and taking that they could only claim the portion of the total debt that goes up to the date he died it's actually @ £6000, the rest was after his death, so cannot be claimed against his estate then the fee is approx £225 (cheaper if done online). Add to that any solicitor's fees to process the claim (£2K - £3K). If the solicitor's think they have a good case they will undoubtedly offer a CFA (Conditional Fee Agreement) as they can they charge an uplift on their fees of successful.

Also note that under the Insolvency Act any attempt to divert assets to defraud creditors can be set aside.

Thanks for you answers - very helpful :-)

Vomityspice

When the original debt was incurred, I'm assuming the father has property rights to the house. The fact that he died and the house became the wife's doesn't negate the fact that this was an asset that a creditor would chase?

Try to think about it as if he was still alive. Would it be equitable to owe creditors money, but have a large asset they apparently couldn't touch? If limited liability was wanted then incorpotration was the way forward. However, the reason (i suspect) this didn't happen was because they were well aware that if they did, all those tax deductable perks that boosted their monthly pay, would go out the window.

I suspect the other party have paid for a Land Registration title and discovered that they have an option. On the 'Charges' part of the form (Part 3) will list any mortgages / charges on the property. Perhaps they believe that this is better than nothing?

The cost of a £6k claim would be smaller and there is nothing stopping them doing the application themselves (its not really that difficult!), making their costs £120ish.